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Frequently Asked Questions
A franchise is where one person (the Franchisor) licences to another the right to run their business using the franchisor's brand and systems over a limited period of time. In return for this the franchisee will usually pay the franchisor an initial fee for the purchase of the franchise and an ongoing fee or royalty for the use of the franchisor's brand and systems and for the support provided by the franchisor for a certain period of time. The franchisor and the franchisee enter into a franchise agreement which sets out each party's rights and obligations and the franchisee is required to operate their business according to rules set out in the franchise agreement and in operational manuals developed by the franchisor.
While buying a franchised business is no guarantee of success, buying a franchised business which is part of an established franchise system can have distinct benefits over and above buying an existing non-franchised business or starting your own business from scratch. These include:
- Statistics show that a franchise business is usually less risky than starting your own business from scratch.
- You are using a model to operate your business that has already been proven to succeed.
- You are using branding that is already recognised in the market place. You will not need to spend time and money to develop public recognition of a brand from scratch.
- You will receive support from the franchisor who has already has the experience in operating the business and knows what works and what doesn't.
- You will receive training, support and manuals which will assist you to operate your business successfully.
- You get the benefits of running your own business combined with the benefits of being part of larger network for instance – preferential supply arrangements in a coordinated manner.
- You have the benefit of coordinated national and local marketing paid for by contributions from all franchisees and arranged by the franchisor.
- You may find it easier to obtain finance if you are purchasing a well-known franchise business
- Franchising is a great way to find talented people to manage your locations and give them an incentive to work harder than they would if they were your employees. Franchised business tend to operate more successfully due to the fact they have motivated owner operators.
- You can expand your business using someone else's capital and the costs of franchising your business is usually recouped after the first couple of franchise sales.
- Franchising permits multiple units to be opened at the same time or in quick succession resulting in rapid expansion and increased market dominance.
- Due to their purchasing power franchisors can often negotiate volume discounts from vendors and suppliers.
- You get the benefit of an increased advertising marketing and advertising budget due to the contributions paid by all franchisees.
- Franchisors earn revenue from many sources, including initial franchise fees, royalties, marketing contributions, sale of products, training fees and rebates from suppliers.
Absolutely. A Franchise lawyer will have the experience to provide you with the assistance you need in a timely and cost effective fashion. They will be familiar with franchise agreements so you will not be paying to "up skill" a lawyer who is not experienced in franchising. They will help you understand your legal obligations and the powers of the franchisor so you know exactly what you are in for. Not all franchise agreements are made equal and a franchise lawyer will be able to tell you whether or not what is in the franchise agreement is normal and reasonable. They will also have connections in the franchise industry and will be able to point you in the direction of other franchise professionals who can assist you. Your franchise lawyer may already have experience with the franchise system you are looking at. The purchase of a franchise can be a significant investment with long term liability and in some cases can be a bigger or at least similar financial investment as your family home. Getting the right advice can make the difference between you making a good decision or a bad one.
A franchise agreement is the agreement between the franchisor and the franchisee which sets out the rights and obligations of each party in relation to the franchise. It is typically weighted heavily in favour of the franchisor. The reason for this is to protect the franchisor's intellectual property and to promote consistency amongst all franchisees. Often the obligations of the franchisee are guaranteed by the franchisee's directors and/or shareholders.
In its simplest form, a licence is where a person (called the "Licensor") owns or has rights to something ("the Licensed Property") allows another person (called "the Licensee") to use it in return for some form of payment. The Licensor does not pass any ownership rights to the Licensee – the Licensee is merely getting the rights to use the Licensed Property. A Licence Agreement can be quite simple or very complex. If you buy a franchise, what you are buying is licence to use certain intellectual property which usually consists of the use of a system to conduct your business in certain way (as prescribed in a manual) and a right to use various trademarks and brand names. Where it differs from a Licence is in the obligations of the franchisee which are usually quite extensive and prescriptive.
“To Michael Robinson – I wanted to thank you and your colleagues for many years of excellent service to the Bank. You have an outstanding business that has proved to be one of the most reliable and ethical businesses that Collections have dealt with in the almost 9 years I was with the Bank.”
“Joy, we cannot thank you enough for your help with our purchase! You have been wonderful to deal with and so proactive (and patient with my numerous emails). We will be visiting NZ in April so will make sure we drop in to thank you in person.”
“John is very easy to talk to, he never makes you feel dumb, and never makes you feel like you are wasting his time for asking questions. He explains everything very clearly, every time. John's support staff are also very efficient and so easy to deal with. No detail is missed when dealing with them. My husband and I are fans of them all :)”
“I can't speak highly enough of Jenny. She got everything done in a timely manner and when my ex-husband threw a spanner in the works at the eleventh hour she got the required documentation to his lawyers and settlement back on track.”